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Sen. Jack Reed (D-R.I.), chairman of the Banking subcommittee that oversees securities and investment, told Schapiro in June he had concerns about the effects on municipal governments. In July, nine Senate Democrats sent a letter to the chairman citing similar worries.

“The regulations under review by the SEC would have been harmful to Main Street,” Sen. Mark Begich (D-Alaska) said in a statement to POLITICO. “At a time when cities across the country are struggling to keep cops on the beat, teachers in schools, and the lights on at City Hall, the last thing we should be doing is making it harder to access critical short-term funding.”

The concerns stretch into the House.

Rep. Stephen Lynch (D-Mass.), a Financial Services Committee member and Dodd-Frank supporter who has made a show of chastising Wall Street officials like JPMorgan CEO Jamie Dimon at congressional hearings, said he has concerns about “serious unintended consequences” for local governments that could result from proposed reforms.

“A lot of the customers of money market funds lobbied pretty effectively on this, and a lot of them are close with Democratic constituencies,” said Brian Gardner, an analyst with investment bank Keefe, Bruyette & Woods. “They’re the pension funds and municipalities who use money market funds as a cash management tool.”

Whether strong backing from congressional Democrats would help regulators pass money market reforms is far from a sure thing, but it’s clear the current lack of support is not helping advance a top regulatory priority for the Obama administration.

“The regulatory process will never be free from politics,” said Jaret Seiberg, a policy analyst at Guggenheim Securities. “So significant congressional support for further regulating money market mutual funds would not only further embolden the regulators to act, but it also would make it more likely that the industry would make major concessions to find a workable compromise.”

Many investors view money market funds as an alternative to savings accounts, but unlike those bank deposits, money market accounts are not backed by the government.

With action at the SEC stalled, the alternative route is for FSOC, a panel of top regulators created by Dodd-Frank, to implement greater oversight, such as subjecting major fund firms to Federal Reserve supervision.

FSOC and its member agencies are “exploring all the options” to put reforms in place, a source familiar with the matter said. The group is scheduled to meet later this month.